The orthopaedic device industry has flourished in recent years with the orthopaedics market slated to produce more than $4.6 billion in revenue by 2015.¹ Orthopaedic devices are typically categorized into diagnostic, prosthetic, and surgical categories. This industry boom is largely a response to the increase in healthcare issues facing America’s aging population. Currently, 40.3 million Americans are over the age of 65, and this number will nearly double by 2030.² Seniors are the primary patients in need of reconstructive products such as hip and knee replacements. Given the shifting population dynamics and the ensuing health problems, the orthopaedics industry is pressured to advance technology that can diagnose and treat age-related orthopaedic conditions. In addition, the need for minimally invasive surgical devices has recently skyrocketed, leading to the development of innovative devices and new surgical methods.

Patents are the currency of the orthopaedics industry. In order to survive, orthopaedic device companies must distinguish themselves from their competitors through their intellectual property (IP) portfolios. These patent portfolios are the key to success. They should embody a well-reasoned business strategy in which each patent is a single building block in a larger portfolio that reflects present and future business objectives. A strong patent portfolio is also important in the current orthopaedic device investment climate. Venture capital funding often depends on whether a company has secured its IP assets, which validates a company’s technology and demonstrates its commercial potential. Although building and maintaining a strong patent portfolio is important for all orthopaedic device companies, it is most critical for start-up firms. Patent portfolios are often the driving force for major events in the life cycle of an orthopaedic device company, including mergers and acquisitions, public offerings, venture capital investment, strategic collaborations, joint ventures, and litigation.

There have been recent measures taken by Congress, the U.S. Patent and Trademark Office (USPTO), and the Supreme Court to reform the current patent system. Orthopaedic device companies must respond with strong patent strategies that take these new reforms into account while establishing a competitive edge in the market. Such comprehensive technology strategies must maximize patent coverage of a company’s current core technology and future improvements, monitor the patent landscape, and explore ways to patent white space, while also considering crosslicensing opportunities with competitors. Companies will then be able to withstand patent reform and ensure their success in today’s competitive and rapidly changing IP environment.

Congress Passes Major Patent Reform

Dykeman

Major changes to the U.S. patent system are brewing, with Congress’s patent reform legislation, the USPTO’s proposed changes in patent examination processes, and the Supreme Court’s issuance of far-reaching opinions. These changes will affect how orthopaedic device companies develop and manage their patent portfolios.

After years of anticipation, President Obama signed the America Invents Act into law on September 16, 2011. This is the first major legislative change to the U.S. patent system since 1952.  
The most significant changes include switching the U.S. patent system from a first-to-invent to a first-inventor-to-file system and introducing postgrant opposition review. These changes, slated to become effective 18 months and 12 months after enactment, respectively, will dramatically affect current patent filing strategies in the orthopaedic device industry. For example, the first-inventor-to-file rule will cause inventors to err on the side of filing strong provisional applications as quickly as possible. As a result, inventors may end up prematurely filing patent applications, before they understand the full capabilities of an innovative technology. Inventors will also need to write more detailed patent applications, to minimize opportunities for third parties to block improvement patents. Furthermore, eliminating the much relied–upon one-year grace period under the current first-to-invent system may hamper the natural scientific review process, where ideas are shared and discussed by colleagues, particularly in university and research settings.

Meanwhile, the postgrant patent opposition review will increase the number of challenges to patents based on both novelty and obviousness grounds. Orthopaedic device companies should monitor the issued patents of key competitors to determine if they want to challenge their competitor’s patents. This change favors major medical technology players that have resources to challenge patents in an increasingly complex and time-consuming process. Orthopaedic device companies must carefully adjust to these congressional reforms to maintain a strong patent portfolio that protects their core technology.
 
U.S. Patent Office Proposes New Rules
According to data from the USPTO, the current backlog of unexamined patent applications is at nearly 700,000.³ As a result, the average processing time, from filing an application to receiving a first USPTO action, is at least two years. Further, it takes more than three years, on average, for a patent to be issued. In an effort to reduce this logjam, the USPTO is advancing its own patent reform by proposing new programs that could lead to faster patent allowances.

First, the USPTO has implemented an accelerated examination program to address the lengthy turnaround process regarding the allowance or denial of patent applications. Accelerated examination promises that final decisions on patentability will be rendered within 12 months of filing. A quicker turnaround time not only allows inventors to protect their products from infringement, but also attracts investors who want the certainty of an issued patent.

Another USPTO program designed to facilitate the patent process is the Full First Action Interview Pilot Program. An expansion of earlier successful examiner interview programs, the program includes all technology areas, including classes that cover diagnostic, prosthetic, and surgical devices. Under this program, applicants have the right to an interview with the patent examiner before the first office action on the merits in a utility patent application. This interview resolve patentability issues at the beginning of the process, thereby advancing prosecution of a patent application. The program is scheduled to run through May 16, 2012 and may be extended.

Finally, the USPTO has joined the Patent Prosecution Highway (PPH), an international program that speeds up examination by relying on prosecution in a corresponding foreign application filed in one of 15 participating countries, including Canada, Australia, those represented by the European Patent Office, and Japan. The PPH reduces time spent on examination because patent examiners reuse the search strategies of their foreign counterparts. The PPH also shortens the wait time prior to examination. A granted PPH request will result in patent applications being examined within two to three months, according to the USPTO. Once examined, PPH patent applications enjoy a surprisingly high allowance rate—more than 90% of PPH cases are allowed, compared to only 50% of standard, non-PPH cases.⁴

In an industry where a well-developed IP portfolio is indicative of success, orthopaedic device companies should take advantage of the USPTO’s programs to expedite patent prosecution. Doing so allows a company to establish a strong patent portfolio that reflects current innovation and industry developments.

The Supreme Court Weighs In

Abramson

The U.S. Supreme Court recently issued far-reaching opinions that affect patent prosecution and licensing strategy. In 2007, it ruled on one of the most challenging questions in patent law: what makes an invention “obvious” and thus unworthy of a patent?  In KSR International Co. v. Teleflex, the Supreme Court affirmed the invalidity of Teleflex’s U.S. patent no. 6,237,565.⁵ The Court found that the patent claim merely combined obvious elements in the prior art and rejected a narrow application of the “teaching, suggestion, or motivation” test for assessing obviousness. KSR particularly affects orthopaedic device companies whose products tend to comprise incremental improvements and combine established devices and techniques. It may bar their patentability and characterize them as predictable variations of already existing art and devices. To survive obviousness challenges post-KSR, patents should clearly state the product’s new features, discuss the challenges of altering the design of the product, and identify how its combining features are not predictable in light of prior art.

The Supreme Court addressed the patent eligibility of a process in Bilski v. Kappos, one of the most anticipated U.S. Supreme Court decisions of 2010.⁶ Although the claims of the Bilski U.S. patent application relate to financial services, the Supreme Court’s interpretation in Bilski of the “machine or transformation” test is applicable to the patentability of medical diagnostic and personalized medicine methods. The Bilski decision states that the machine or transformation test is not the sole test for determining the patent eligibility of a process, but rather a useful and important clue or tool for investigation.

After the Bilski decision, the Supreme Court granted judicial review, vacated the decisions of the U.S. Court of Appeals for the Federal Circuit, and remanded to the federal circuit for reconsideration two cases related to medical diagnostics: Prometheus Laboratories Inc. v. Mayo Collaborative Services and Classen Immunotherapies Inc. v. Biogen Idec. In Prometheus, the patent claims were again found patentable under the machine or transformation test. In Classen, an opposite decision was issued in which two of the three Classen patents were patent-eligible, while one patent was not. Previously, all three patents at issue in Classen were held invalid. Thus, medical device companies must work closely with their patent counsel to draft patent claims that conform to the decision in Bilski and its aftermath.

These Supreme Court rulings indicate a trend in recent years of the Court’s willingness to address perceived problems in the U.S. patent system. To build and maintain a strong patent portfolio, orthopaedic device companies will need to implement patent strategies that account for these major Supreme Court decisions.

Protecting Core Technology
Developing a strategic patent portfolio that addresses Congress’s reforms and the first-inventor-to-file rule means establishing patent protection for a company’s core technology. One or more patent applications should be filed providing the broadest possible patent protection covering the core technology. When drafting patent applications, an orthopaedic device company should teach current and future technology innovations, as well as alternative embodiments that competitors may attempt to design around the company’s core technology. Where applicable, patent claims should be directed at diagnostic, surgical, prosthetic, and combination devices; kits; methods of manufacturing, treatment, or use; and any other aspects of the invention. As the core technology evolves, incremental improvements should be patented to form a picket fence of protection.
Another key to broad patent protection is an offensive strategy that prevents competitors from infringing on (making, using, or selling) a company’s invention. Companies need to patent aggressively—they need to file quickly and frequently. Filing aggressively ensures that a company will claim ownership of the technology first and can block competitors by filing patent applications that cover improvements to a competitor’s product to effectively limit product enhancement options. Meanwhile, companies should monitor their competitors’ portfolios to identify potential patent infringement.

Filing international patent applications further strengthens a patent portfolio by expanding a company’s presence in the global marketplace. A company should consider filing in specific countries with a large target market for the product—countries where competitors’ manufacturing facilities are located and countries that export products to other countries through channels of distribution. Having patents in these countries will protect the company against potential infringers around the world.
Finally, a company should conduct frequent audits of its patent portfolio to ensure its patent strategy adapts to changes in the legal landscape and the marketplace. A patent audit allows a company to assess strengths, weaknesses, and gaps in its patent portfolio and identify opportunities to enforce patents against competitors. Conducting periodic patent audits ensures that a company’s patent portfolio achieves broad and cost-effective coverage of its discoveries.
 
Finding Freedom to Operate to Patent White Space

Exploring white space is another method for obtaining a strong patent portfolio. The amount of white space measures the crowding of a particular technology area with patents and patent applications. If the patent landscape is relatively clear, there is room to stake meaningful new patent claims. Given the USPTO’s recent programs to address the patent application backlog and provide accelerated examination procedures, companies pursue patent applications in clear patent landscapes before they become crowded with competitor patents.

Before patenting white space, a company should undertake a freedom-to-operate analysis to avoid infringing on patents owned by third parties. After conducting a thorough search of patent and scientific literature databases and identifying third-party patents, a company should maximize its patent presence within that particular commercial area. It can accomplish this by identifying potential patent design-around opportunities that a competitor might use and blocking these opportunities by seeking new patents or modifying current patent applications.

Combination products and therapies provide another means of exploring white space and anticipating industry developments. A combination product pairs biologics, drugs, and medical devices to provide a targeted and specialized treatment that minimizes side effects. Examples of combination products in orthopaedics include bone fracture fixation devices combined with an antiinfection coating and implants combined with bone growth factors. To avoid issues regarding ownership of combination products (one company may claim ownership of a device and another company may claim ownership of a drug or biologic), patent rights can be assigned either entirely to one party or jointly between the parties. Or, an exclusive or nonexclusive license may be established among the companies.
 
Crosslicenses and Competition
Crosslicensing with competitors is another way to bolster a patent portfolio and address challenges to the patenting system.⁷ A crosslicense is a mutual sharing of patents between companies without exchanging a license fee. Companies enter into crosslicenses when they have overlapping patents, and practicing one patent would mean infringing on another. The companies pool the relevant patents together and divide the patent rights amongst themselves so that each party takes exclusive or nonexclusive rights to a particular area of use covered by the combined patents. A crosslicense is also accompanied by a promise not to sue. Therefore, each party in the agreement can practice its patent rights without infringing on another’s, thereby avoiding expensive and time-consuming patent litigation.

Crosslicensing agreements are increasingly important given a recent rise in patent infringement cases in the orthopaedic device industry, especially among key industry players. To counter this trend in court filings and avoid costly litigation, companies should consider crosslicensing strategies with competitors to further bolster and protect their patent portfolios.
 
Conclusion
Orthopaedic device companies must build and maintain high-value patent portfolios to be successful in today’s competitive and rapidly changing patent environment. These patent portfolios face numerous challenges in the patent reform storm from Congress, the USPTO, and the Supreme Court. By aggressively protecting core technology, optimizing the patenting of white space, and seeking crosslicensing opportunities with competitors, orthopaedic device companies can achieve a strong patent portfolio. This will secure a company’s competitive advantage in the marketplace by maximizing patent protection, securing funding, enhancing revenue, and increasing marketing value. It will also be broad and flexible enough to withstand the changing patent landscape.